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Can Venture Capital Save The World?

(This article is the cover story of the December 19, 2011 issue of Forbes.)

Bahawalpur in eastern Pakistan is known for magnificent palaces built during the British Raj, but in the dusty part of town where most of the 400,000 residents actually live, four dozen farmers have gathered in the decidedly unpalatial concrete building that houses the local branch of the National Rural Support Programme Bank. Their darkened, sun-creased faces testify to the toll of tilling soil in one of the hotter places on Earth (at 11 a.m. in mid-June it’s ­already heading toward 105 degrees); many twist their hair into head scarves, and all don cotton ­tunics known as kurta.

Suddenly the front door swings open and a tall woman with piercing blue eyes and brownish blonde hair struts in, dressed in a red tunic and baggy pants. Accompanied by the bank’s president, Rashid Bajwa, Jacqueline Novogratz whips out her red notebook and gets down to business. “What kind of livestock do you have?” she asks one client. “How many male calves? How much money are you saving at the bank? What do you do with that cash?” An hour later, the notebook now filled with minute details of how, exactly, the farmers intend to pay back their loans, as well as whether their daughters go to school and what they want their children to do when they grow up, Novogratz walks out of the bank, satisfied. “I’m feeling optimistic about rural Pakistan,” she tells me, as a pickup truck, loaded with field hands, rumbles past a mosque. “Farmers are making good money.”

Novogratz plays the role of auditor because, as CEO and founder of the Acumen Fund, helping people starts with financial due diligence. In April Acumen sank $1.9 million into the bank in exchange for an 18% stake, one small investment in a decadelong experiment in charitable giving. Instead of shoveling aid dollars to causes or governments that give away life-­sustaining goods and services, Acumen espouses investing money wisely in small-time entrepreneurs in the developing world who strive to solve problems, from mosquito netting to bottled water to affordable housing. It’s a new twist on the old adage about teaching a man to fish, except that Novogratz wants to build an entire fish market.

The bank in Pakistan is a good example: Acumen’s financial injection has enabled the bank to lend small amounts (up to $350) to farmers. The bank charges 28% interest—exorbitant unless you consider the 9% to 10% the local money lenders charge per month. Acumen has given Pakistani farmers the ability to access cash at credit card rates, versus the loan shark terms of before—a staggering 125,000 clients have tapped the bank for $30 million in new credit this year. Novogratz’s infusion has also allowed the bank to take deposits for the first time, introducing the idea of savings, and 6% interest rates, to a community that has been locked in poverty for centuries. Since April 10,000 farmers have deposited $7 million in the bank, which of course has resulted in yet more loans.

Novogratz obsesses over such numbers. (“How many liters per day of milk are the cows producing?” she asks a farmer later that afternoon as she takes cover from the heat in a grove of ­rosewood trees.) Hence, the signature notebook, which she ritually fills with observations and talking points that she turns into Acumen propaganda— specifically, Jacqueline’s Journal and Jacqueline’s Letter. Field visits, says the 50-year-old Novogratz, “give me insights and quantifiable data I can bring to conversations that have, frankly, been devoid of them for so long.”

Quantification is key. Acumen Fund is quite literally a philanthropic venture capital fund, which has put $69 million to work in India, Pakistan, Kenya, Tanzania, Uganda and Rwanda. Its loans and equity investments mandate the same benchmarks traditional VCs use, with a twist: Since the donor-investors don’t get their money back—all returns are reinvested in Acumen—progress is measured not in ROI but rather against the good that could have been done by simply giving the money away. No easy task but one that makes Acumen’s mission more critical: to prove that altruistic capitalism can solve the world’s ills.